Posts Tagged ‘tips’

In certain countries, there has been a significant decline in the number of retail investors, and one of the reasons for this could be that many retail investment decisions are taken based on “tips” from experts. Investors who blindly follow these tips, often burn their fingers, and then hesistate to invest any more money in the stock market. At times these “experts” who are heavily promoted in the mainstream media have their own agenda, may have a stake in the company that they are promoting and may also have been offered financial incentives.

Another problem with using tips as the focus is on short term gains. Investors are encouraged to look for stocks whose price is likely to zoom/rise rapidly in the short term ( often based on insider information), so that they can sell it off in a few weeks or months time for a profit. Doing this is very time consuming for a busy investor, who has little time to spend buying , tracking and then selling the shares of different companies. Even using a demat account, an investor has to spend at least a few minutes just placing a buy order for a particular stock at the target price. Often no shares are available for sale at the target price, so the time spent by the investor is wasted and he or she has to place the same order again. More taxes have to be paid for short term capital gains compared to long term capital gains.

So while tips may provide additional inputs about a company which an investor is researching, it is not advisable to use them as the main source of information about a company.